Following a pattern seen in many major markets, surging occupancy in the Class C product has played a big role in Charlotte’s overall occupancy performance during the current economic cycle.
In August, occupancy in Charlotte was at 96.2%, essentially in line with the U.S. average of 96.3%. In fact, it’s been common for Charlotte occupancy to run right alongside the U.S. norm since the start of 2012. That’s significant, given the massive amounts of new supply that Charlotte has received this cycle and the low occupancy in market coming out of the recession.
When the cycle started in early 2010, occupancy in Charlotte was at a 10-year low below 90%. For the first year and a half of the cycle, occupancy trailed the U.S. average by about 100 to 200 basis points (bps), but Charlotte was slowly closing the gap. In all, occupancy in Charlotte is now more than 600 bps over its pre-cycle low, while the U.S. improvement is closer to 450 bps.
While all asset classes in Charlotte logged improvement during the current cycle, the bottom-tier segment of Class C units recorded the most impressive progress. In August, Class C occupancy in Charlotte was incredibly tight at 97.2%. In fact, occupancy in this bottom-tier segment has run at 96% or better since the middle of 2015. This tier of stock has seen a stunning comeback of over 1,000 bps, after occupancy got as low as 86% in the recession.
August occupancy was also in good shape in Charlotte’s Class A and B properties, registering around the 96% mark in each product segment. The progress in these upper-tier segments was strong as well, with occupancy growing by 540 bps in the Class B units and by 470 bps in the Class A stock during the cycle. Occupancy in these product lines started the cycle in much better shape – at around 91%.
All this occupancy improvement happened, even while Charlotte reigned as one of the top development markets in the nation. During the current cycle, nearly 50,400 new apartments have been delivered in Charlotte, increasing the existing base by 36.3%. No other market among the largest top 50 saw growth reach that rate. Austin and Nashville were tied for the #2 growth pace, with the base in both markets swelling by 32.4% since early 2010.
Charlotte also ranked among the top 10 markets for job growth in recent years. The market added 291,000 jobs during the cycle, increasing the job base by 30.2%, the #8 performance nationwide. Demand spurred by strong job growth is a big reason why occupancy has been able to perform so well in Charlotte. Another contributing factor is pricing. While rent growth has remained strong throughout much of the current cycle, monthly prices in Charlotte remain about $250 below the national norm at around $1,150. Class C average rents trail Class A rents in Charlotte by about $700.
While Charlotte was not among the top 10 rent growth performers during the current economic cycle, prices have climbed a sizable 40.9% since early 2010. By comparison, the U.S. saw rents climb an average of 34.6%.
As of August, annual rent growth was at about 4% to 5% across all of Charlotte’s product lines. The Class A stock saw the most moderated growth at 4%, but that is still solid compared to the stunted progress seen in the top-tier units in some of the nation’s other big-construction markets. Class C units in Charlotte are commanding rent increase of 4.2%, while Class B stock is growing rates at 5%. Before the cycle started, operators were resorting to price cuts in Charlotte’s apartment stock. Rent cuts were steepest at more than 7% in the Class C product.